Short-Term Debt Financing and Shareholder Value: Evidence from Listed Manufacturing Firms in Kenya
DOI:
https://doi.org/10.53819/81018102t4381Abstract
Listed manufacturing firms in Kenya play a critical role in driving economic growth, contributing approximately 18% to the country's Gross Domestic Product (GDP) and creating over 2.3 million jobs in both formal and informal sectors. However, these firms have faced challenges in consistently generating shareholder value over the past decade, raising concerns about their ability to sustain value creation. While shareholder value has increased among listed firms in general, the performance of listed manufacturing firms remains notably weak. Previous studies investigating shareholder value have produced inconsistent findings, leaving uncertainty about how financial structure influences shareholder value in these firms. This study addresses this gap by examining how short-term debt financing affect shareholder value among listed manufacturing firms in Kenya. Anchored on the Modigliani and Miller Theory and the Trade-off Theory, the research adopts a positivist philosophy and a causal research design. The target population included 21 listed manufacturing firms on the Nairobi Securities Exchange (NSE). Secondary panel data for the period 2012–2023 was extracted from published financial statements and analyzed using Stata software, employing both descriptive and inferential statistical techniques. The study found that short term debt had a positive and significant effect on shareholder value (β = 0.284519, p = 0.015 < 0.05), suggesting that efficient use of short term borrowing to support liquidity and operations enhances value. In view of the findings, the study recommends that managers and regulators should focus less on altering ownership structures and more on limiting costly long term borrowing, supporting working capital discipline, and deliberately growing and redeploying retained earnings to drive shareholder value. In addition, policymakers, especially the National Treasury, Capital Markets Authority, and Nairobi Securities Exchange, should consider formulating financial policies that encourage manufacturing firms to adopt balanced financing approaches.
Keywords: Short-Term Debt Financing, Shareholder Value, Capital Structure, Manufacturing Firms, Nairobi Securities Exchange
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